Over 40 years ago, renowned management consultant Peter Drucker said, “What gets measured gets improved.” That concept is still true today, and it applies to accounts payable processing. The questions for CFOs and Controllers are, “What do I measure?” and “How do I know if my numbers are great or just okay?” The key to answering those questions is to look at the most important metrics, and then comparing yourself to best-in-class AP departments.
Critical Metrics for Accounts Payable Departments
Any number of metrics can give you information about the effectiveness of your AP department. The operational metrics are the best source for not only gauging effectiveness, but also for providing insight on ways to improve. Further, because the invoicing function is extremely paper and labor intensive, it’s helpful to look at how quickly your suppliers are transitioning to e-invoicing.
According to the research firm Ardent Partners, the 2016 metrics below represent the latest measures that define best-in-class performance and their respective market averages.
- Cost (all-inclusive) to process a single invoice: $13.04
- Time to process a single invoice: 12.2 days
- Invoice exception rate: 17.6%
- Percentage of invoices processed straight through: 24.5%
- Percentage of suppliers that submit invoices electronically: 20.4%
- Percentage of invoices linked to a purchase order: 54.0%
You can compare your results to those above to determine if you’re above or below average. You may not be able to track a metric such as the percentage of invoices processed straight through if your operation isn’t set up to perform that function. Just keep in mind that, on average, a quarter of your potential competitors can do that type of processing, so you may be behind the curve.
The average cost of $13.04 to process an invoice is higher than most people want it. That has prompted efforts to automate invoice processing. In addition, only about 20 percent of suppliers are submitting invoices electronically. Increasing that number would have a big impact on reducing the overall cost and time required to process an invoice.
Comparing Yourself to Best-in-Class Companies
To further analyze this data, Ardent sorts the results by the lowest cost and time to process an invoice. They then group the top 20 percent as best-in-class companies, creating a very informative look at these numbers.
Cost (all-inclusive) to process a single invoice:
- Best-in-Class: $2.87
- All Others: $15.38
Time to process a single invoice:
- Best-in-Class: 3.9 day
- All Others: 17.1 days
Invoice exception rate:
- Best-in-Class: 11.2%
- All Others: 19.5%
Percentage of invoices processed straight through:
- Best-in-Class: 57.1%
- All Others: 16.1%
Percentage of suppliers that submit invoices electronically:
- Best-in-Class: 47.3%
- All Others: 12.6%
Percentage of invoices linked to a purchase order:
- Best-in-Class: 70%
- All Others: 52.3%
Other results identify a number of capabilities that can help explain why the best-in-class companies have such a great advantage (Best-in-Class vs. All Others):
- Standardized AP processes across the enterprise: 81% vs. 54%
- Two- or three-way matching capabilities: 80% vs. 66%
- Ability to process invoices straight through: 71% vs. 33%
- Ability to automatically route invoices for approval: 69% vs. 55%
- Ability to match invoices to contracts or payment plans: 64% vs. 36%
Unless you’re in the best-in-class category, the opportunity to improve your AP department’s productivity is evident. AP leaders need to address the capability gap that is holding their departments back.
If you have questions about accounts payable automation, the experts at ACOM are available to discuss solutions to your challenges. Call us at 800-347-3638, or contact us online.